Gold: Bank Holiday Next

Fundamentals

Most markets have an equilibrium based on supply and demand. What drives the market to extremes is speculation. Recently, that speculation has been driven by fear based on the coronavirus. People who have been in the market for a long time, who just got into the market recently at the top, are now nervous. The back of the bull market in equities has been broken, so now the market has to prove itself that it isn’t in a bear market. It needs to identify these levels based on supply and demand, where people will be willing to buy. When we get some volume, and it exceeds the selling pressure, then you’ll see it in the price. Then that's the trigger point - the Buy 1 or Buy 2 level, which is the trigger to buy.

The VC PMI day trading program shifts to a higher fractal in price when the market price closes above the Sell 2 level. Most technical systems or programs are not able to adapt when markets go to extremes. The VC PMI adapts by creating a new five-level structure based on the weekly numbers when a market reaches the extreme levels based on the daily data.

If you see this incredible volatility in the market, the only thing I can say is to you is to keep the emotion out of your trading and look at the incredible opportunities that these gyrations create. If you get involved with chatter, if you get involved with the news out there, it's going to be very confusing because nobody really knows what's happening. The coronavirus was a Black Swan that pretty much took off the band-aid on the system, and now we are beginning to smell the rotten system that we’ve been dealing with since the 2008 recession. This violent volatility is basically the transfer of wealth from weak money to strong money. What you saw in the last couple of weeks in the equity markets and in the metals markets are basically weak money people that should not be in the market and who are afraid, panicking. We're dealing with an environment that requires patience and objectivity, not emotion, which is one of the reasons why I think the VC PMI automated algorithm works the best because it deals with the volatility of the market and not the emotion. The more volatile the market becomes, the more accurate you'll see the VC PMI signals.

Annual Gold Numbers

Using the VC PMI, on Sept. 30, 2019, we calculated the annual targets for the supply and demand for the 2019-20 season. In the report, we pretty much calculated the sell one level at $1655. This was when the market was at $1506. The report told us that the nine-month average price was $1550. For the VC PMI for the year $1417 is the mean for the year starting Sept. 28. The report also told you based on the calculations that the Sell 1 level is $1655. The Sell 2 level is $1803. We have made $1704 as the recent high and so we have completed the first target. The way that the long-term indicators pretty much identify the trend it basically now tells you that if we close below $1655, it would activate a bearish short trigger on the annual basis from $1655. The target if activated would be the first target of $1454 because we're looking at the long term. The algorithm told you to take profits on longs as we reach the $1655 to $1803 levels during the year. This was when the market was that $1506, so that's almost a $200 move since September of 2019.

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This is a very critical point for us in the gold market because we're dealing with a new element called coronavirus. After meeting the target of $1657, and running up to about $1700, and this is a classic textbook of the reversion to the mean.

Extreme volatility = extreme opportunities

Markets are reacting to the coronavirus with an unprecedented fast market. Gold is down $50 to about $1592.60. NUGT is in a fast market. The market seemed tremendously oversold, so we might find support down here. For gold and silver, we could be looking at a cyclical bottom right here. Money appears to be coming back into the ETFs.

It's difficult to make sense of what's going on given the volatility in reaction to what is happening in Italy, travel bans and such related to the coronavirus. If you have a position open and you are not on margin, that's a good position to be in.

Taking the emotion out of the market, it seems that $1580 for gold appears to be the target for this move. The numbers appear to be coming to a level where the market is moving into an area with an increasing probability of finding buyers.

The US stock market has now wiped out the entire $11.5 trillion of value it gained since Trump's 2016 election victory

The market was down more than 3% and $11.5 trillion of wealth has been wiped out. I don’t know what the administration needs to do to alleviate the panic that has afflicted the market. Trump is certainly not providing any confidence. The prices in the market are reflecting the lack of leadership or confidence. There's a discussion of a government emergency fund of $40 billion for businesses to access discount loans to get through the current coronavirus crisis. Part of the problem with the market is that many people do not know how to use leverage positions. It’s great to use a lot of leverage when the market is going your way. For triple X ETFs, some investors took margin on leveraged ETFs, which I think is completely crazy. It's asking for trouble. When the unexpected happens last month, then there's massive liquidation of highly leveraged instruments.

Every voter who voted for Trump is rethinking their decision. This is an incredible economic and political development. In one administration we have seen record highs and now a bear market in the stock market.

I believe that we are going to hear something come out of the administration or Europe that will help. Europe has agreed to purchase 120 billion Euros each month in stimulus. Until the US administration does something, we are going into a really confusing time. The volatility is going to be unprecedented.

GOLD

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Gold is trading last at $1576, a reflection of deflationary consequences, very similar to 2008. Once the market settles down, precious metals broke away in 2008. Gold came down to around $1100.

I believe that we are looking at an incredible trading opportunity. When there's blood in the streets, that's the time to buy, particularly in the metals. It’s not just one area that has been affected. Every market has been hit. The losses on oil reserves are in the 50% range. With interest rates so low, when you can borrow at historic levels, individuals borrowed to buy on margin. I don’t think we’ve seen the full implications or the ripple effect of this crisis in assets, income, and business. There's no place to go, but precious metals. This was an unprecedented black swan that caught everyone by surprise.

In the US, we are moving toward quarantining areas, but no one knows. We are behind the curve. It may seem like the end of the world. Your equity is down. But please remember, we will get through this!

SILVER

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Courtesy: TDAmeritrade

I try to focus on the technical work we do. The $15.60 area should hold the silver market. NUGT, which is one of the instruments we trade aggressively, has come down from 40 as of Feb. 24, with a 50% discount on the ask. It's primarily reflected by the collapse of the market. It has been affected as a share. In relative terms, gold is still holding very well. Percentage-wise, gold is solid. The only thing that needs to happen is that the stock market needs to find some buyers coming in.

I'm getting back into NUGT because we could be looking at a cyclical bottom, particularly in silver. Silver was the weakest on the way down - it did not follow the gold market. I purchased shares of NUGT today to get back into the market because I’m not on margin. The shares compared to the gold market, even at $1580, are at least $10 to $15 undervalued. This is what markets like this create - historic opportunities. If you keep your cool and you have some money left, you can get incredible opportunities.

Gold has come down below the daily VC PMI level of $1621 (Buy 2) and has come down to the weekly level of $1601 (Buy 1). The Buy 2 level is $1530. With the market trading below the Buy 1 level of $1601, the market has entered an area of accumulation. The price is entering the blue area. The artificial intelligence tells you that if the market enters the blue area, there's the highest probability of a reversion from these levels, just as it did on the 18th when it closed above $1604. We rallied to about 91, and the market discounted the virus until we got a handle on what the damage could be. The market came down, corrected and found support at $1564 on Feb. 28. The market from a high of $1691.70 came down over a few days to $1564.

The market tested that level and then reverted from the low to a high of $1650. This kind of volatility is unprecedented in gold. The VC PMI told you to buy at that low.

Now there's a high probability that the market may revert. The weekly gold average price is $1647. The extreme below is $1601. The Buy 2 level is $1530. I’m waiting for the price to get back above $1601 and activate a buy signal above. In terms of the futures contract for day traders, wait for the algorithm to activate the trigger point. When the price closes above $1601, you activate a buy trigger. The trigger for conservative traders is to wait until the 15-minute bar close. If the market closes above there and activates the buy signal, it defines for you automatically where the stop is: The level below. It defines your risk and your target. A close above $1601 activates the $1647 target.

When a market is trading around the mean, it could go either way, so wait until the price comes down or goes up to an extreme level. The extreme levels represent the highest probability trades: 90% for Buy 1/Sell 1 and 95% for Buy 2/Sell 2.

The virus has put the equity markets into a bear market. Now you should sell the rallies in the equities. I don’t believe going into the bond market right now is a smart idea. We are going to see a shift in the paradigm, and I think we will see inflation, and possibly hyperinflation. In the world markets, the supply chain has been completely broken. We are going to see more shortages of everything, including food in supermarkets. We are going to deplete our current inventories quickly over the next few months. We have not yet seen this in terms of data, is to what extent has the supply chain really been affected. We are going to have to go through a very difficult period, which could lead to a world shortage of food. Markets will adjust. Once the dust settles, this is going to be an inflationary environment. Goods are going to be in shortage, so prices will rise. This is a new territory. This might be what was needed to put a major bottom in the commodity markets. I would keep an eye on the grains, soybeans, and corn. Basic food is going to be the next target of discussion. We haven’t even discussed how much this situation is disrupting the supply chain: There's no data. We are going to see gold as a beneficiary of this crisis. Over thousands of years, whenever there is economic chaos, gold and silver rise in value.

US Dollar

People are looking for safety and the dollar serves that purpose. On the 21st there was a high of 90/91. Then the coronavirus hit and the dollar came down to 94 or 95, before capitulating yesterday. I thought the administration would offer some support, but that didn’t happen. The dollar index is starting to count on the hope that the Fed will have to do something drastic, significant and robust in terms of stimulus to bring confidence back into the market. That's what the dollar is saying - it's being worked out.

Gold is trading in this area of support. I don’t want to go short here. I'm looking for the market to revert as it did on Feb. 28 from $1564 to $1704, a $200 move. We are getting a hundred and two hundred dollar moves. I believe major money is going to see this as an incredible opportunity in gold and silver, which also has come down into the weekly Buy 2 level of $15.95. This is a high area of probability to accumulate.

Summary

The equity markets are looking for something more significant from the federal government in terms of a stimulus package of some kind. Until it happens, this volatility is going to continue. When we look at gold, it's offering an incredible opportunity as a potential hedge for what’s coming and for the damage that has been done. We are about to turn the corner on gold and it will act as a risk asset and as a hedge. I would look at silver, too. Gold and silver are beginning to adjust their spread relationship. We could see silver lead the way. We expect this cycle low will put the bottom in gold and silver over the next day or two, or at any time. This is a great opportunity, use it to change your future!